Gold Futures saw some selling pressure due to the weak China data yesterday. The much-anticipated HSBC China manufacturing PMI was released Thursday and came in at a reading of 47.8 in the latest month, which was the eleventh straight month of contraction in China’s manufacturing sector. Gold Futures in Indian markets, (MCX) have reversed the gains on the back of a stronger INR- Indian Rupee, whilst Comex Gold Futures hold to the gains of the last 6-8 weeks strongly. The next 10 to 15 days may witness a high level of volatility in Gold Futures trade.
Technical Turbulence for Gold Futures:
Technical indicators are signaling Comex Gold Futures Prices may be poised to decline after rallying over $200 or 12% in the past two months. Gold is within $20 to reach its 2012 high of $1,790.30 an ounce set on Feb. 29. Gold’s 14-day relative-strength index is at 76.5 today, above the level of 70 that generally indicates a drop in Gold Futures prices may be imminent. But a “Golden cross” formed on spot Gold’s price chart gives bullion investors another reason to increase their bullish bets. On Thursday, Gold’s 50-day moving average (DMA) traded above its 200 DMA, which marked a golden cross in technical analysis, indicating bullion’s intermediate and longer-term momentum is getting increasingly bullish, reported Reuters. Given shorter-term moving averages have all turned higher in recent weeks and the bullish price action recently, this golden cross today is an additional indicator of strength in an already strong Gold Futures market. The previous long-lasting golden cross on bullion charts was formed on Feb. 6, 2009, and Gold Futures prices surged 11% in the following 11 sessions. Technical traders and momentum-driven investors could buy more Gold Futures as the bullish formation will remain in place as long as the current Gold Futures price stays sharply above its 50-day and 200-day moving averages. Gold Futures are currently seen flat at $1,770 an ounce, more than $100 higher than its 50 DMA at $1,650 and its 200 DMA at $1,645. Volatility in Gold Futures may continue till the end of September or further till 5th October as Gold Futures contracts for October delivery expire. Upside movements may get triggered on shifting long positions to the December Gold Futures contracts.
Gold Futures will lose ground in Indian Markets:
MCX Gold Futures have turned downside in Indian Commodity Markets while Comex Gold Futures trade remains strong at the 6 month highs achieved recently, exactly as alerted several times in the last few days. The strong US Dollar flows lifted the Indian Rupee to a four-and-a-half month high of 53.31 to the US Dollar. The INR – Indian Rupee Sep Futures rose by 1.85% to 53.31 against the US Dollar, which is an indication that the FII – Foreign Institutional Investors find the recently announced FDI for Retail, Aviation & the Diesel rate hike reforms by the Indian Government appealing & may be pumping in loads of cash. Equity benchmarks hit their highest levels in more than 14 months, as investors are now betting that the ruling UPA coalition will be able to push through more economic reforms.
Gold Futures lose Appeal to riskier assets as Indian Equity Markets Soar:
The 30-share Sensex climbed 403.58 points – the second 400-plus point single day gain in five sessions – to close at 18,752.83. The 50-share Nifty hit a high of 5,720 before settling at 5691.15, up 136.90 points or 2.46% over the previous close. With today’s rally, the Nifty has gained 23% so far this year. Experts believe the government will definitely come up with slew of reforms to revive sluggish economic growth. Finance Minister P Chidambaram has announced a lower tax on foreign borrowings by local companies. He said, “Tax will be cut to 5% from 20% and withholding tax liability on Indian companies reduced to 5%.” The reduced tax will apply to borrowings between July 2012 & June 2015. FM also approved Rajiv Gandhi Equity Savings Scheme. ETF and mutual funds brought under Rajiv Gandhi Equity Scheme and investors will get 50% tax rebate on investment. SP – Samajwadi Party chief Mulayam Singh Yadav said his party would support the UPA – United Progressive Alliance from the outside. This could be a major trigger for the market as the government will move further with their other reforms like insurance in FDI, land acquisition bill etc. The market fell more than 200 points in previous two sessions after the Trinamool Congress chief Mamata Banerjee had withdrawn support over FDI approval in retail sector and hike in diesel price by Rs 5 per litre.
Tech Specs for Silver & Gold Futures Trading:
Comex Gold Futures remains largely strong till trade maintains momentum above the crucial $1744.3 level & may see bounce ups to $1778.5, $1801, $1825.3 & then $1855. A strong decline below $1742.5 to $1734.4 support range could lead Gold Futures to $1716.4 & then to a strong support level of $1660.6 also. Comex Silver retains strength till above $34.03 & may resume its upside journey to $35.56, $36.28 & then 37.72 for the short term. The first real resistance Silver may face would then be around $44.20. MCX Gold Futures have declined (as repeatedly alerted for Indian Trade) more on the back of the sharply rising INR / US Dollar, than due to corrections in Gold in the International Markets. In fact Gold seems strongly sustaining at higher levels in the International Commodity Markets.I strongly feel that Gold would continue to remain weak in Indian markets till the INR continues its Northward journey. Trade in MCX Silver would provide more handsome returns in comparison to Gold in Indian markets also. The US Dollar fall is what is making Gold Futures prices rise, but at the same time the fall in US Dollar makes the INR stronger which in turn has an adverse effect on Gold prices in Indian Markets. Indian Investors in Gold Bullion may be largely disappointed & Silver would prove a better bet.
Multiple Easing from major Central Banks rekindle appeal of Gold as a Inflation Hedge:
A new round of bond buying by the U.S. Federal Reserve last week and loose monetary policies from other major central banks have rekindled the metal’s appeal as a traditional inflation hedge. The Federal Reserve announced a third round of debt-buying Sept. 13 and the Bank of Japan said two days ago it will add 10 trillion yen ($128 billion) to a fund that buys assets. The European Central Bank announced an unlimited bond-purchase program Sept. 6 and China approved a $158 billion plan for subways-to- roads construction. Gold rose 70% as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011. Some investors buy bullion as a hedge against inflation and a weaker dollar. The Fed said it will buy $40 billion a month of mortgage debt to bolster the labor market and probably hold the federal funds rate near zero until at least the middle of 2015. Inflation expectations measured by the break-even rate for five- year Treasury Inflation Protected Securities surged to the highest since May 2011 on Sept. 17, reported Bloomberg. Gold Futures will climb to $2,000 by the second quarter and will reach $2,400 by the end of 2014 if the Fed’s latest easing lasts until then, Bank of America said in a Sept. 18 report. Gold Futures Prices will exceed $2,000 in the first half of next year, Deutsche Bank wrote that day. Morgan Stanley expects Gold Futures to average $1,816 next year and Standard Chartered predicts a second-quarter average of $1,900. Both would be the highest ever. Investors bought 115.9 metric tons through Gold ETPs since the beginning of July, the most since the second quarter of 2010. Holdings reached a record 2,523.7 tons yesterday, data compiled by Bloomberg show. Physical Gold purchases will bolster prices before the Indian wedding season and religious festivals later this year.